Since the release of Seattle’sHousing Affordability and Livability (HALA) plan in July 2015, city policymakers have been plugging away at defining its most ambitious policy, a type ofinclusionary zoning called “Mandatory Housing Affordability” (MHA). MHA couples zoning changes that allow larger buildings—“upzones”—with mandates on developers to provide affordable homes or pay into the city’s affordable housing fund. With MHA, Seattle has an opportunity to become a model for Cascadia and beyond for embracing growth and supporting affordability in concert.

But as I have written previously (here andhere), the success of MHA hinges on striking the right balance between upzones and mandates. If they balance, MHA will propel progress toward a more economically integrated and inclusive Seattle—the kind of city where people from all income levels find housing options where there are great schools and close job opportunities. If they do not, Seattle will get the opposite: less housing overall and less lower-cost housing, too. The housing shortage will worsen, competition will stiffen for what’s available, and prices will escalate,displacing more low-income residents. Asmore cities consider inclusionary zoning, they too will face the risk of its potential backfire.

The theory of MHA is exactly right, but its implementation was always going to be the hard part.

The theory of MHA is exactly right, but its implementation was always going to be the hard part. It’s a technically difficult policy to operationalize, because not only is real-estate development a complicated process in itself, but the MHA program parameters must also be custom tailored for a vast range of building types and zones throughout the city. Defining MHA affordability requirements that work well under such a huge variety of conditions is a monumental urban planning challenge.

Last month Seattle’s Office of Planning and Community Development released the last in aseries of reports that lay out its proposals for MHA. This article first provides a brief overview of the program followed by a theoretical discussion of value exchange—that is, what builders trade for investing in subsidized, below-market-rate housing. It then evaluates the city’s proposed MHA upzones and mandates, identifies problems, and recommends fixes.

Fixing some first draft errors can ensure the city delivers on its housing affordability promises. The main findings are that (1) the MHA program as proposed would create serious inconsistencies in the balance between the value created by the upzones and the cost of the affordability mandates, and (2) in many cases that balance is tilted toward mandates that are too onerous relative to the value of the upzones. The resultant added costs imposed on homebuilding will suppress development, jeopardizing the program’s goal of 6,000 new affordable homes. To avoid that failed outcome and get the MHA program back in balance, additional real estate development feasibility analysis is the critical missing ingredient.

An overview: What the planners have been cooking up and where it’s headed

Although Seattle’s MHA program applies to both residential and commercial development, this article addresses only the residential side, wherein lies the greatest risk of unintended, counterproductive consequences for affordability in Seattle neighborhoods. The city projects that residential MHA will produce4,080 affordable homes over 10 years. To hit that number, planners have proposed a stretching set of MHA upzones and associated affordability mandates throughout the city. The scale of the upzones varies, but most are relatively modest (for example, maximum height raised from six to seven stories). Each upzone is assigned a performance requirement and payment requirement, and developers can choose one or the other.

Under the performance option, building developers must rent or sell a specified percentage of a building’s housing units at prices affordable to households earning 60 percent of area median income (AMI), currently$54,180 for a family of four. Under the payment option, builders pay a per-square-foot fee based on the total floor area of residential use in the building, and the city uses that money to fund separate affordable housing projects. The city sets the payment amounts roughly equal to the monetary loss builders would incur if they had chosen the performance option. (Details on the calculationare here, and projections on performance versus paymentare here.)

Thedraft MHA applies to all property within the city’s urban villages and centers and to all property zoned for multi-family elsewhere in the city (excluding designated historic districts), as illustrated in the map below. Nearly all single-family and industrial zones are excluded from the program. The areas subject to MHA get assigned upzones and corresponding performance and payment amounts. The specifics of each upzone depend on the existing zoning and other city planning priorities. Maps detailing the proposed MHA upzones in each of 21 different neighborhoods arehere andhere.

The first neighborhood likely to see MHA implemented will be theUniversity District, where a rezone process began way back in 2011. Approval by Seattle City Council could come as early as mid-February 2017. Getting the MHA numbers right in the University District rezone would set a precedent for other parts of the city.

The city plans to implement MHA next in downtown and South Lake Union (SLU) in April – May 2017. For the remainder of the city, the Office of Planning and Community Development is currently preparing anEnvironmental Impact Statement and expects to complete it in May 2017. The city is also conducting anextensive outreach process to educate residents and get feedback on the 21 proposed neighborhood upzones noted above. The mayor hopes to haveMHA implementation completed as early as late summer 2017.

The core principle of MHA is equal value exchange

As proposed in Seattle’sHALA recommendation R.1, MHA is grounded in the concept of an equal exchange of value: upzones would allow developers to make more money, but they would dedicate most of that money to housing low-income families:

Amount of affordable housing required (and in-lieu fees) is based on value of upzones, and varies by market and construction type.

Implementing this principle consistently across Seattle’s dozens of different zones and dozens of different building types is essential. First, an inconsistent value exchange will have capricious effects on housing development. Without consistency, in one zone MHA might cause, say, a five to ten percent net increase in the total cost of building—enough to kill feasibility. Meanwhile, the owner of a property around the corner in a different zone with balanced MHA requirements might see no net increase in development costs at all. An imbalance in the opposite direction could leave affordable units “on the table,” that is, construction would have remained feasible under higher requirements.

More importantly, the biggest risk to the success of MHA is if inconsistency leads to affordability mandates so onerous that homebuilding diminishes. In this lose-lose outcome, the city not only gets fewer new rent-restricted homes, but also ends up with a lot less market-rate housing. And when market-rate homes don’t materialize in a high-demand city such as Seattle, competition for what housing remains intensifies through acruel game of musical chairs in which the poorest families always lose. The loss of market-rate housing eliminates affordable housing through the process of economic displacement—by far the most common cause of displacement in Seattle, when rising rents force tenants to move.

To put things in perspective, the production goal for the residential portion of MHA averages about 400 rent-restricted units per year. Just two 200-unit apartment buildings rendered infeasible by MHA per year would effectively negate most of the subsidized units produced by the program. And suppressing construction of two 200-unit buildings per year could easily result from poorly balanced MHA rates in a city where thousands of apartments are built per year. When that housing doesn’t get built, the would-be tenants will instead bid up the prices of existing city apartments, setting in motion the musical chairs dynamic all the way down the market, where the people with the least are most likely to get pushed out. In the end, close to 400 low-income families and individuals could have no options but cheaper homes outside of the city or to double up with friends. The very solution intended to help these families winds up driving them away from their community, schools, and jobs.

Just two 200-unit apartment buildings rendered infeasible by MHA per year would effectively negate the benefits of all of the subsidized units produced by the program.

On the other hand, if the mandate/upzone tradeoff errs on the side of incentives rather than disincentives for homebuilding, the only downside is that the number of rent-restricted units per building would be slightly lower. But because under these conditions MHA would improve feasibility, the city would expect to see an uptick in homebuilding projects, each of which would deliver rent-restricted homes. So in fact, a lower mandate could actually lead to more subsidized, lower-cost housing, not to mention the indirect affordability benefits of supplying more market-rate housing—and that means getting closer to the important city goal of plenty of homes of all kinds for more people of all walks of life.

Given the complexities of zoning and real estate development, it is unrealistic to expect MHA to provide a perfectly equal value exchange in all cases. But given the lose-lose unintended consequences of excessive affordability requirements, the architects of MHA would do well to err on the low side when setting the mandates: aim high with the upzones, aim low with the requirements!

Lastly, if the costs imposed by MHA are greater than the upzone’s value, and especially if the value exchange varies widely, the program may be more vulnerable to alegal challenge. Washington state law bans affordability mandates outright unless they are balanced through value exchanges.

Equal value exchange starts with a proportional relationship between affordability requirements and the increase in building size

The value of an upzone is determined by the extra rent or sales income derived from the additional market-rate homes permitted by the upzone. At the most basic level, equal value exchange necessitates a proportional relationship between the number of subsidized housing units mandated (or the in-lieu fee) and the number of market-rate units gained.

For example, a simple formula for maintaining that balance is a stipulation that for every three additional apartments allowed by an upzone, one unit must be reserved as affordable for families at 60 percent of AMI. An upzone that allows just three extra units yields one rent-restricted apartment. An upzone that yields 300 extra units produces 100 rent-restricted apartments.

In contrast, Seattle defines the MHA performance and payment amounts in relation to the entire building, not to the size of the upzone. This approach makes Seattle’s MHA math more complicated than it needs to be, though it’s still just math. The value exchange can still be balanced and consistent as long as the whole-building requirements are derived from the extra capacity granted by the upzone.

For example, consider a 6-story apartment building with 12 units per floor, subjected to an MHA upzone that allows one additional floor and mandates that one-third of the extra units be subsidized. The resulting enlarged building would provide four rent-restricted units out of 84 total, or about 5 percent. Boost the upzone to two floors, and the building would have to provide eight rent-restricted units out of 96 total, or about 8 percent. The value exchange can be kept consistent by adjusting the whole-building requirement as the size of the upzone varies.

The increase in building size is governed by multiple factors

The simplest metric for gauging development capacity is “floor-area-ratio” (FAR), which expresses the total floor space of a building relative to the area of the property it’s built on. For example, a one-story building that completely covers its property has an FAR of one: for every square foot of property, there is one square foot of floor. A four-story building that covers half its property has an FAR of two. An upzone from four to five full stories corresponds to a 25 percent increase in allowed FAR. In Seattle, most multi-family zones are regulated through FAR, though some are not (many zones in downtown, for example).

Cities can also control building capacity with regulations such as height limits, density maximums, setbacks from property lines, and open space and parking requirements. In some cases, variation in the cost of different construction types may also act as a restraint on development capacity. For example, if building codes mandate expensive concrete or steel construction for buildings exceeding a given height, it may be cost-prohibitive for developers to use all of the height allowed by zoning (more on this later). In other cases, market demand for certain unit sizes or inherent dimensional constraints on unit layouts may limit the usability of capacity granted on paper. Depending on the specifics of a zone, in addition to FAR, any or all of the above factors may play a role in determining the value developers can derive from an MHA upzone.

Value exchange is also determined by rents, but rents don’t sit still

The value of an upzone also depends on the market rent (or price) of housing. All else being equal, the higher the rent, the more valuable every extra increment of building capacity that zoning allows, and the higher the affordability mandate can be without jeopardizing feasibility. But here’s the challenge: market rents vary continuously over both location and time. Like a stopped clock that tells the correct time twice a day, MHA mandates are static and cannot track changing rents. That’s an inherent drawback—there is simply no way that an MHA system can be defined to accurately and consistently account for the endlessly churning variability of real estate economics.

To help compensate for the effect of varying rents on value exchange, Seattle planners have proposed three location-based tiers of “market strength” that reflect typical rents in different parts of the city, as shown in the map below. The proposed performance amounts increase along with market strength: 5, 6, and 7 percent for the low, medium, and high tiers, respectively. Places with higher rents get higher requirements. For example, new housing in Capitol Hill must provide 7 percent affordable units; in Ballard, 6 percent; in Rainier Beach, 5 percent.

The proposed market-strength areas are well aligned with the general variation in typical rents across Seattle. But the geographical delineation of the market areas has such a low level of granularity, the inevitable result will be requirements that hit or miss equal value exchange depending on the exact location and unique features of individual development projects. This moving target highlights the importance of erring on the low side with affordability requirements to avoid the lose-lose result of suppressed housing production when the determining factors are so fluid.

In particular, evaluating the impact of Seattle’s proposed MHA program on feasibility necessitates a before-and-after comparison. “Before” means the status quo existing zoning conditions, and “after” means subject to the new rules of MHA, including the upzone and the affordability mandate. This two-part, “all else being equal” feasibility analysis can answer the question that matters most: compared to doing nothing, would the implementation of MHA compromise feasibility and result in fewer new homes produced?

Seattle’s planners hired a consultant to conduct a feasibility study on MHA andpublished the final report last month. For the purposes of assessing value exchange, though, the city’s study has a critical shortcoming: the analysts did not assess feasibility under the “before” conditions, and therefore the study provides no information on how MHA would change development feasibility.

Instead, in brief, the study did a static analysis. It imagines a scenario in which MHA upzones and mandates are already in place. It assumes an array of things about rents, construction costs, interest rates, and the like. And it calculates, based on these assumptions, that housing development under MHA would mostly be feasible in high-market areas, mostly infeasible in low-market areas, and a mixed bag in medium-market areas. So even ignoring the lack of before-and-after comparison, the report still signals big problems with the current draft of MHA because it imposes a larger encumbrance on housing construction feasibility in lower-rent areas of the city.

But a static analysis is largely irrelevant. It doesn’t test the principle of value exchange, which is the foundation of a successful MHA program. And without an understanding of how implementing MHA would or wouldn’t impact development feasibility, anyprojections of home production are just guesswork.

Both of these apartment buildings in Seattle’s Central Area were developed by the non-profit Low Income Housing Institute and provide subsidized housing affordable to seniors and families earning less than 50 to 60 percent of area median income. In-lieu fees collected through MHA would be used to help fund similar buildings throughout the city. Photo by Dan Bertolet, used with permission.

How does the MHA proposal measure up on value exchange?

The city has proposed two separate systems of MHA affordability requirements: one for downtown and the South Lake Union (SLU) neighborhood and one for everywhere else in the city. This article addresses only the “everywhere else” system. (An initial look indicates that the proposed MHA requirements for downtown/SLU are partially based on a proportional relationship to the added capacity granted by the upzone but that there are also inconsistencies.) Outside downtown and SLU, MHA is projected to produce 3,080 rent-restricted homes over ten years.

The proposedperformance and payment amounts foroutside of downtown/SLU are shown in the matrix below, and they apply uniformly to all proposed upzones. On the horizontal axis of the matrix, the requirements vary according to three geographically based market-strength areas, as described and mapped above. On the vertical axis of the matrix, the requirements vary in very rough proportion to the scale of the upzone, as designated by an “M” suffix (definitionshere). For example, a zone that currently allows four-story buildings upzoned to five stories is classified as “M”; if upzoned to seven stories, it’s “M1”; and if upzoned to high-rise, it’s “M2” (more on this later).

Within each “M suffix” tier, the affordability requirements apply uniformly to a wide variety of upzones. It follows that planners must be assuming that the value created by each upzone is fairly consistent. But is it?

As a first measure, the table below showsFAR and height increases for proposed MHA upzones with the “standard M suffix.” The FAR boosts for these upzones range greatly, from just 4 percent to as much as 41 percent. In other words, based on raw FAR alone, the value exchange is severely inconsistent.

And how close to equal are these value exchanges? As noted above, the city has not conducted the kind of before/after feasibility study necessary to answer that question with any precision. The original HALA report describes the typical MHA upzone as adding one floor to apartments with four to six stories. Assuming a full added floor, that translates to FAR boosts ranging from about 17 to 25 percent. Based on analysis conducted by HALA committee members, upzones in this range are likely to create a value exchange that is reasonably balanced with the proposed affordability mandates shown in the table above. Likewise, in aprevious article, I presented a simple before-and-after feasibility analysis for a hypothetical MHA upzone that granted an increase in FAR of 20 percent, and it indicated that the value exchange would be roughly equal.

As a preliminary rule of thumb for equal value exchange under the proposed MHA affordability requirements, in general, a FAR increase of 20 percent is a reasonable target. As shown in the table below, many of the proposed MHA upzones provide lower FAR boosts, and therefore risk rendering some homebuilding projects less feasible. The two most powerful levers for restoring balance are the FAR boost and the affordability requirements: either raise the former or lower the latter, or both. But in addition, as discussed above, factors other than FAR may also influence the value of an upzone. In the following sections, I’ll take a closer look at some of these unique conditions and their implications on value exchange.

The “NC” upzones generally reflect the original intent of HALA, but lean toward compromising feasibility

With the exception of NC-95, the “NC” upzones shown in the FAR table above have FAR boosts from 15 to 20 percent. Based on the 20 percent rule of thumb discussed above, these upzones are likely to be close to a balanced value exchange—though if anything they are likely erring on the high side of requirements.

However, new requirements for upper-level setbacks take a bite out of the value of both the NC-55 and NC-75 upzones. Such rules insist that upper stories of a building have a smaller floor plate than lower stories, to make them less visible from the street. The problem is that the irregularities in building form introduced by setbacks increase construction costs, negating some of the added value. The NC-75 upzone suffers from an additional hit on upzone value because the extra floor is built in the base of the building out of concrete, which is more expensive than the wood used in the upper floors.

The FAR boosts for the NC-55 and NC-75 upzones are already on the low end of the rule-of-thumb target, and these additional value-reducing factors heighten the risk that the value exchange will tilt too far against feasibility. In both cases the risk could be mitigated by removing the setback requirement and raising the FAR to allow the addition of a full floor.

Upzones from 85 to 95 feet will suppress development

The NC-85 to NC-95 upzone stands out with a paltry 4 percent FAR increase. What’s more, a jump from 85 to 95 feet is probably worthless anyway, from a builder’s perspective. Raising a building’s height from 85 to 95 feet requires a change of construction type from wood (relatively cheap) to concrete or steel (expensive) and also crosses the high-rise height threshold, triggering costly building code requirements. These structural and building code barriers explain why vanishingly few new apartments are nine to eleven stories tall. Either you frame in wood and stop at eight, or you switch to concrete and steel and build much taller—typically at least twelve—to recoup the cost.

Given that developers will rarely, if ever, use the additional 10 feet of height, what matters is how much value the upzone grants without that height bump. The worst-case before-and-after MHA scenario is mixed-use apartment buildings of similar construction type that both maximize FAR, yielding only that miniscule capacity increase of 4 percent, and a corresponding diminutive increase in value (this is the case analyzed inthe city’s feasibility study).

Here again, though, the raw FAR boost doesn’t tell the whole story because this particular zone reserves 1.5 FAR for non-residential use only, and typical mixed-use apartment buildings don’t include enough retail or office space to take advantage of that FAR. The likely best-case scenario for value creation is a 70-foot-tall “5-over-2” building at FAR 5 before MHA, compared to an 85-foot tall “5-over-3” building at FAR of 5.5 after MHA. That’s an FAR boost of only 10 percent. But the third floor of concrete and the required more expensive fire-retardant wood negates some of the 5-over-3 building’s added value. (See notes at the end of the article for details on these building types.)

In sum, MHA upzones that raise heights from 85 to 95 feet will likely function as downzones. No one will build to nine stories because of the extra construction cost. Eight-story buildings will bear the brunt of the MHA costs because the upzone provides relatively little value. Consequently, fewer eight-story buildings will be erected than if MHA had never been introduced.

The city could fix this flaw by reverting to the upzone proposed in the original HALA report: 85-foot zones would increase to 125 feet, thereby creating value sufficient to cover the affordability requirements. Removing the unusually high FAR requirement for non-residential use would also help.

Low-rise upzones have relatively low capacity increases and are further compromised by unique constraints

The FAR boosts for LR1, LR2, and LR3 upzones are 8, 15, and 10 percent, respectively. So right off the bat, two of the zones are well below the 20 percent rule-of-thumb FAR boost, while the third is at best getting close.

On top of that, the value of upzones is compromised by unique aspects of townhouse or rowhouse projects. First, developers can’t derive much extra value from an upzone unless it allows the addition of a full extra unit. At the same time, homebuyer preferences limit the range of marketable unit sizes. Extra capacity applied only to enlarging units typically reduces the per-square-foot value of the building, eroding the value of the upzone. Also, larger units will have a higher price tag when sold.

The city’s townhouse prototypes for the LR2 zonedescribed here (page 30) illustrate the diminishing returns of enlarged unit size. The MHA upzone yields the same number of units, but the prototypes’ average size rises from 1,500 to 1,750 square feet. Even worse, the units get a fourth floor, which undermines marketability because it’s not desirable to walk up and down four stories in a home. It also bumps the project out of the residential code and into the more expensive building code intended for commercial structures. Required setbacks on the fourth floor would also tend to increase construction costs.

Second, density is typically limited by restrictions other than FAR, such as setback, open space, and parking requirements. Without relaxation of the various development standards that limit density, the additional FAR is unlikely to result in more homes getting built. Accordingly, the proposed LR1 upzone, for example, includes the removal of thecurrent limit on housing unit density (one unit per 1,600 or 2,000 square feet of lot, depending on type). Similarly, the LR3 upzone removes currently required design standards for enclosed parking and alley access improvements in exchange for added FAR.

Other potential design standard fixes that the city could consider include reduced setbacks, longer maximum facade lengths, and FAR exemptions for partially underground portions of the structure. In any case, even with relaxed design standards that add value by enabling better use of the additional FAR, the value of the LR1 and LR3 upzones is still ultimately limited by their relatively small 8 and 10 percent FAR boosts.

All told, the net effect of the draft MHA values would likely be to suppress housing construction in low-rise zones, yielding little in-lieu fee revenue for subsidized housing projects and further tightening the supply of “missing middle” housing in Seattle—that is, cheaper options like duplexes, triplexes, rowhouses, and small apartment buildings, and in particular family-friendly homes affordable to first-time buyers. Again, the solution is to either lower the mandates or raise the value of the upzones. And to compensate for the quirks of low-rise, planners should consider erring even more on the side of lower mandates.

Complicated intermeshing with existing regulations creates outliers

The MR and SM-U-85 upzones are outliers on either end of the FAR spectrum shown in the table above. The 41 percent FAR boost for the MR upzone is so high because the MHA upzone is incorporating the FAR bonus currently available through the city’s Incentive Zoning Program. Several other proposed upzones absorb capacity from Incentive Zoning in the same way, including High-rise (HR) zones in the North Rainier and Dravus Urban Villages, and many zones in downtown and SLU.

Meanwhile, the proposed upzone in the University District from NC-65 to SM-U-85 is complicated by the additional FAR granted through the city’sStation Area Overlay. The overlay already raises the allowed FAR to 5.75 in the existing NC-65 zone, even though typical buildings in that zone can’t use that much FAR anyway. So in practice, the proposed upzone’s FAR of 6.0 represents a boost bigger than the 4 percent shown in the table above, since the two added floors can actually consume the extra FAR. But on the downside, building to 85 feet requires a more expensive construction type that knocks down the value of the upzone.

These two cases, along with the NC-95 and low-rise upzones described in the previous sections, illustrate how the city’s proposal to set uniform affordability requirements on the whole building for a variety of different upzones is an ill-suited method for consistently creating equal value exchange. As suggested above, planners could minimize the inconsistency by instead setting requirements specific to each upzone, based on the specific upzone’s estimated value.

The value exchange for larger upzones is inconsistent

As noted above, the draft MHA loosely reflects the scale of upzones by assigning higher mandates for cases in which an upzone increases the allowed building size by more than one standard zoning change increment, as designated by M, M1, and M2 suffixes. This refinement helps balance the affordability mandate with the extra value of these larger upzones, but it still falls far short of delivering a consistent value exchange because here again, the FAR increases vary enormously.

The table below illustrates the inconsistency among larger-scale upzones classified as “M1.” The increase in FAR is all over the map for different upzones, but the performance and payment amounts are the same for all of them, regardless. For example, the upzone from 65 to 320 feet is far more valuable than the upzone from 65 to 95 feet, yet both bring the same affordability requirements.

To avoid the inevitable inconsistency caused by three categories (M, M1, and M2), here again, the solution is individual calculation of performance and payment amounts for each upzone. For example, applying the rule-of-thumb baseline standard I proposed above (5 percent inclusion for a 20 percent FAR boost) the mandate would be 18 percent inclusion for the upzone from 65 to 320 feet and 7 percent for the upzone from 65 to 95 feet.

That is not to say those should be the final numbers, though, because, as discussed above, FAR is not the only determinant of value. But such customization would also allow adjusting the mandates down to reflect unique conditions that reduce the value of the upzone. The leap in construction costs above the high-rise threshold of 85 feet is one such condition. Anotherthreshold above 240 feet triggers requirements for time-consuming and costly structural peer review, reducing the net value of upzones that cross that height, such as the one from 65 to 320 feet—and this particular upzone crosses both thresholds, such that a hefty reduction in mandate would likely be appropriate.

Upzones to high-rise may warrant reduced mandates to support other city goals

As shown in the table above, upzones to high-rise (SM-U-240 and SM-U-320) grant relatively large FAR boosts, and, based solely on the principle of equal value exchange, would justify relatively high affordability mandates. However, in the case of high-rise, other city planning goals may warrant departing from an equal exchange by scaling back the mandates.

Built of concrete or steel, high-rises are typically about 20 percent more expensive to construct than mid-rise buildings (less than 85 feet tall) that can be framed in wood. For that reason, high-rise construction is typically only feasible in areas that command high rents, such as downtown and SLU, but usually not in medium market-strength areas such as the University District or Northgate. However, in both of those medium-market centers, the city hopes to focus high-density housing growth to meet Comprehensive Plan targets and to leverage the region’s investment in light rail. High-rise housing development is key to achieving those goals.

In a medium market-strength area, a straight upzone without MHA might be enough to make high-rise feasible. Compared to that baseline, the larger the financial encumbrance imposed by MHA, the less likely a high-rise building will pencil out. This increases the risk not only of stymied projects outright, but also of under-building: in areas where rents aren’t high enough to support high-rise, developers may opt to construct lower-cost, non-high-rise buildings even though zoning would have allowed them to go taller. The result is permanently underutilized land that could have provided more housing—both market-rate and affordable—if not overly encumbered by MHA requirements.

A second reason that may warrant scaled-back requirements on high-rise derives from an inherent quirk in the whole MHA scheme: properties that got upzoned before MHA will invariably have lower affordability requirements than properties subject to the exact same upzones implemented under MHA. That’s because the city cannot impose new affordability requirements against the value of upzones that happened in the past. This built-in inequity of MHA will tend to precipitate lower fees in zones that already allow the largest buildings in the city—downtown and SLU in Seattle, for example. And that imbalance would shift production away from the areas upzoned to high-rise under MHA to areas that already allowed high-rise.

As they work toward finalizing the MHA requirements, planners could conduct further analysis to determine if competing city priorities could be better met with pared-back affordability requirements on upzones that allow high-rise construction where it is desired but has not occurred historically. Fortunately, as discussed above, erring on the side of lower affordability mandates is the lower-risk path for MHA.

In a recent update to the original MHA proposal, policymakers raised the performance and payment amounts in certain parts of Seattle in response to community concerns about displacement. These changes were focused on areas the city previously identified as having high risk of displacement, including the Central Area, North Beacon Hill, North Rainier, Columbia City, Northgate, Crown Hill, and Chinatown/International District (the areas are highlighted with crosshatching on the map above).

Community concerns are genuine and important. Displacement is a serious problem in Seattle, and city leaders should explore all possible avenues for minimizing it and for mitigating it. Unfortunately, setting higher MHA requirements will not help achieve these objectives and in fact is likely to have the opposite effect. Raising the mandates shifts the value exchange against development feasibility, and the result will be fewer new homes—both subsidized and market-rate—built in the targeted areas. But contrary to popular belief, the best available evidence shows that the construction of market-rate housingreduces displacement. In fact, the city’s own study of the University District showed that the proposed upzones would accelerate housing developmentyet would result in less displacement than if the zoning was left unchanged.

The goal of reducing displacement would be best accomplished by rescinding these elevated MHA requirements and implementing a suite of separate, targeted anti-displacement measures in areas with high displacement risk. Seattle’sEquitable Development Implementation Plan is a great example, with successful anti-displacement projects underway. Targeted preservation of existing, privately owned, low-cost housing is another complementary strategy.

Seattle policymakers have so far made good progress on developing a complicated program that must establish upzones and corresponding affordability requirements for a vast range of conditions throughout the city. However, the success of MHA under the current proposal is jeopardized by major inconsistencies in the balance between the upzones and affordability mandates, and in many cases, by what is likely an imbalance that will suppress development and undermine the program’s goals.

Correcting these flaws will rely on more rigorous feasibility analysis that will vet the current MHA proposal against existing zoning to ensure that on balance the program does not create a net encumbrance on homebuilding that would worsen Seattle’s housing shortage, exacerbate displacement trends rather than curb them, and potentially negate the program’s expected housing affordability benefits.

To review, here’s a rundown of the key findings and conclusions:

To avoid the lose-lose outcome of suppressed homebuilding, policymakers should err on the side of lower affordability mandates and larger upzones.

Overall, the proposed MHA value exchange is inconsistent, and on net, the balance leans toward a value exchange that would reduce homebuilding feasibility.

Several of the proposed upzones would likely achieve a value exchange more or less in line with the spirit of the original HALA proposal, though some are compromised by construction-related factors.

MHA upzones from 85 to 95 feet are likely to be worthless to most builders and will suppress construction in these zones.

Peculiar aspects of low-rise building types call for a revised, unique set of MHA requirements if the city hopes to avoid quashing the production of “missing middle” housing (affordable options like duplexes, triplexes, rowhouses, and small apartment buildings).

The MHA value exchange is inconsistent for larger upzones (those designated “M1” and “M2”) and could be corrected with individual calculations for specific characteristics of each upzone.

For MHA upzones that enable high-rise, additional reductions in affordability requirements may be justified to meet other important planning goals in the city, such as the need to focus high-density housing development near high-capacity transit.

The proposal to raise affordability requirements for mitigation against displacement contradicts the city’s own analysis and will slow housing production in the targeted areas—an outcome that is more likely to aggravate displacement than to curb it.

Yes, there is still work to be done on MHA. I plan further research and articles to more deeply explore MHA’s effects on feasibility. Given what’s at stake—thousands of affordable homes and tens of thousands of market-rate homes desperately needed to provide plenty of homes and plenty of housing options to address Seattle’s housing shortage—getting it right is worth the time and effort it takes.

By linking affordability to growth, Seattle’s MHA program has the potential to protect people who call this city home and set Seattle on a path to being a more equitable and sustainable city. And Seattle still has a chance to show cities in Cascadia and beyondinclusionary zoning done right.

Notes

In Seattle, mid-rise apartments in the four- to seven-story range are almost always constructed of a one- or two-story concrete base topped with multiple floors framed in wood. Because in building code lingo concrete is known as “Type I” and the most economical wood is known as “Type V,” construction professionals often refer to this building type as “5-over-1.” To confuse things, though, in popular jargon the same terminology is commonly used to indicate the number of concrete floors and the number of wood floors. For example, a building with a two-story concrete base and five wood floors above is called a “5-over-2.” In this article I employ the popular usage.

Building codes dictate that any building constructed of Type V wood cannot exceed 70 feet in height. But because Type V wood is so cheap developers often opt to underbuild a 5-over-2 even if the zoning would allow 75 or 85 feet of height. The next cheapest option for buildings exceeding 70 feet is Type III wood, which is more fire resistant. On January 1st this year the city of Seattle adopted new building code from the International Building Code that allows five stories of Type IIIA wood on top of a three-story concrete base—“5-over-3”—enabling mixed-use apartments up to 85 feet tall. Previously, reaching 85 feet required more expensive concrete or steel, so the code change will allow for more efficient construction in Seattle’s 85-foot zones. However the code change will not help in the proposed MHA 95-foot zones because Type IIIA wood is cannot exceed 85 feet.

Comments

Nice work but my take-away is that the MHA system is too complex to work, requires too much fine-tuning for each sub-market & needs constan readjustment over time.

I recognize the City’s good intentions but the whole MHA looks like a “something for nothing” trick: we get more affordable housing but it doesn’t cost anyone anything!

Do you believe that? If something sounds too good to be true, then it’s probably not true.

I’m not against the MHA but I don’t expect it to do anything particularly wonderful because — besides the inevitable lawsuits which the City may in fact lose — the system is too complex and ripe for gaming.

But best of luck but I think that it’s a safe bet to invest in Seattle housing because Seattle’s current policies & approaches are not going to be effective at producing a great deal more.

“But contrary to popular belief, the best available evidence shows that the construction of market-rate housing reduces displacement.” You cite Zuk and Chapple’s May 2016 study of the housing in the Bay Area (8 counties) to support this claim, but you are misstating their conclusions. From the executive summary on page 1:

• At the regional level, both market-rate and subsidized
housing reduce displacement pressures, but subsidized
housing has over double the impact of market-rate units.
• Market-rate production is associated with higher housing
cost burden for low-income households, but lower
median rents in subsequent decades.
• At the local, block group level in San Francisco, neither
market-rate nor subsidized housing production has the
protective power they do at the regional scale, likely due
to the extreme mismatch between demand and supply.

And the last sentence of the report:

In overheated markets like San Francisco, addressing
the displacement crisis will require aggressive preservation
strategies in addition to the development of subsidized and
market-rate housing, as building alone won’t protect specific
vulnerable neighborhoods and households. This does
not mean that we should not continue and even accelerate
building. However, to help stabilize existing communities
we need to look beyond housing development alone to strategies
that protect tenants and help them stay in their homes.

Seems to me the “mismatch between demand and supply” is extreme in most Seattle neighborhoods; the promotion of more construction of market-rate housing via HALA policies (such as MHA up zones) will not reduce displacement.

Thanks for the comment, but I disagree with your interpretation that the article indicates that “the promotion of more construction via HALA policies (such as MHA up zones) will not reduce displacement.”

First, the UC Berkeley researchers did their work following up on the CA LAO report, and their results exactly corroborated the LAO’s main finding, namely that less displacement occurred in low-income census tracts that had more private development. The Berkeley study added the finding that the displacement reducing effects of below-market-rate housing are doubled, something I think we would expect, especially since subsidized housing typically comes at a heavy cost to the public purse, unlike market housing. The intent of MHA is to create more market housing and more subsidized housing, precisely two things that “reduce displacement pressures” according to the Berkeley paper.

Second, the results at the census block group level in San Francisco are for a highly unique context, a location that tops the nation for constrained housing supply—average rents are at least twice those in Seattle. I don’t think it’s safe to assume those findings are relevant in Seattle, especially since San Francisco has seen relatively little private housing development over recent decades. There’s just not that much development data to go on, and I would question the universal reliability of such a small sample in such an unusual, isolated setting.

Furthermore, the main findings are at the census tract level, and it makes no sense to me why authors call that “regional,” unless it’s only to differentiate it from the more granular work they did in San Francisco. Census tracts are typically neighborhood scale. Perhaps the displacement-mitigating effects would be reduced in small, isolated sections of Seattle’s most high-end neighborhoods, but I see no reason to believe that the author’s main findings would not apply across most of Seattle’s neighborhoods, as well as to areas outside the city.

The finding about higher cost burden being “associated” with market housing development makes sense to me because private development is always going happen more in places with higher average rents that justify the cost of construction. And where rents are higher, more people tend to be cost-burdened. I think it would be a mistake to assume causality.

In any case, the authors conclude, as you quoted, that for overheated markets “this does not mean that we should not continue and even accelerate building.” In other words they believe that building new housing helps reduce displacement, even in hot markets like Seattle. They are saying it’s a “both/and” solution. That is, keep building in all cases to reduce displacement, and for places where the market is especially hot, apply additional anti-displacement measures to protect tenants and communities. And that is exactly what I prescribed in the last paragraph in the section on displacement in my article.

Thanks for the article! Having sat through the HALA focus group process, it is clear the MHA premiums unbalanced and uneven, yet I don’t see it being addressed. Once the sausage is finally made, I expect the value exchange to be further weighted against new development.

Great article for developers, not residents. The city should independently work to create an affordable housing plan / growth development plan without the influence of real estate investment groups whose only goal is to increase profit. A plan created to meet the desires of a private negotiation between the Mayor and a select group of developers only encourages crony capitalism, not affordable housing.
Furthermore, a profit driven incentive under the thin veil of affordable housing is a disgrace and should not be an acceptable practice to guide growth.
The estimated number of affordable housing units created through MHA over 20 years is so low it will not have a significant impact on the affordable housing crisis we are dealing with today.
The cost to homeowners in zones being changed from single family to LR2 or LR3 will be two-fold. First, the significant rise in property value, therefore tax value, will significantly increase with more valuable land; displacing long time residents. Second, the neighborhood characteristics that brought people to the area will be lost when 50′ buildings with no setbacks are constructed adjacent to existing single family homes, ultimately creating an unbalanced, less safe neighborhood.

Complicated enough that developers will pay the fee, rather than deal with on site units. Low income workers will be displaced to other, less desirable areas. A set up for future ghettos, further inequity.
More funding should go to preservation of existing units, prosperity in place, not expensive new construction, and relocation of existing communities.
That is, of course, if affordable housing for city workers is the true aim of HALA upzones?

This is skewed. No mention of the MFTE program for one. The Multi Family Tax Exempt buildings are all over, ready to be rented with zero waiting list. Look on aptfinder at this list to start. It tells you everything. How long he wait is. Cost. Location. Requirements.

Your article is way too long and if I didn’t know any better, I’d think it was designed to scare people away from this all together.

Stay up to date on the Northwest's most important sustainability issues.

Research Areas

Founded in 1993, Sightline Institute is committed to making the Northwest a global model of sustainability, with strong communities, a green economy, and a healthy environment. We work to promote smart policy ideas and monitor the region's progress towards sustainability.